Executives at UBS Global Asset Management Americas Inc. are betting that the defined contribution industry of the future will provide a growing market for its alternative investments and a retirement income option.
These are strategies that have met with little to no success for UBS and most of its competitors.
And while waiting for that time to come, UBS is suffering declining DC assets under management even as the segment of the market it is in — the investment-only part — keeps growing.
“We are positioning strategies not where the industry is right now but where it's going to be, which is basically liquid alternatives and into retirement income,” said Shawn Lytle, managing director of UBS Global Asset Management and head of the asset management unit's American subsidiary.
“Those are not where the big flows have been,” he added. “We know we need to be patient.”
UBS' DC assets under management dropped to $912 million as of Dec. 31, 2012, according to data the firm provided to Pensions & Investments. Those assets have skidded steadily from $2.16 billion in 2008, a decline of 58%.
During that same period, the overall defined contribution investment-only industry's assets have grown 56% to $4.23 trillion, as tracked by P&I.
“In the last few years, we have not grown (and) we have lost one significant client,” said Mr. Lytle, who declined to identify the client. He said UBS' defined contribution business has stabilized, although he didn't provide updated AUM figures.
“In terms of the new strategies, we have not seen a new takeup of those strategies yet because they are a little bit more forward-thinking,” he said. “We recognize that. We don't want to be a me-too provider, and we know that these are the areas that we can really distinguish ourselves.”
The alternatives strategies, the first of which was introduced as long ago as 2003, are:
nU.S. real estate, as part of a real estate fund of funds, which combines private real estate and some public securities and cash equivalents, introduced in October 2012;
n“Managed inflation,” containing commodities, floating-rate bank notes, energy stocks, real estate investment trusts and Treasury inflation-protected securities, introduced in September 2012;
nOpportunistic fixed income, introduced in May 2006, and a mutual fund version introduced in November 2010; and
n“Dynamic alpha,” an asset allocation strategy with a targeted risk and return, reflecting “the spirit of an unconstrained global tactical asset allocation portfolio,” introduced in November 2003.
All are internally managed, and all but managed inflation have some clients.